Criticism of Cardinal Utility Analysis
The chief points of criticism, which are generally pointed out against the utility analysis approach, are the following: –
- Cardinal measurement of utility is not possible. It is pointed out that the utility analysis is based on the Cardinal Number system and not on the ordinal number system. According to the Cardinal Number system the utility from a commodity can be measured cardinally in some sorts of units for example in utility analysis assumes that the total utility of a particular commodity say apple, can be expressed into 10,30, 40,50 units. According to the cardinal number system on the contrary, the consumer can no doubt indicate his preference for a particular commodity, but he cannot express the magnitude of his preference in concrete numerical terms. For example he can say that he prefers commodity x to commodity Y, but he cannot say how much does he prefer X to Y. Critics have objected to the utility analysis on the ground that Cardinal Number system is imaginary and hence unrealistic and it is not possible to measure utility in terms of numerical units.
- Money is not satisfactory measure of utility. Marshall assumed that money could measure utility, though in an indirect manner. Critics point out that money is only an unreliable and unsatisfactory measure of value because it is not stable itself. For example a man in a desert dying of thirst may be prepared to offer any amount of money for a bottle of water but the same person when his thirst is fully quenched may not be willing to offer a farthing for another bottle of water. A unit of money has for the same person different times similarly, if two persons Mr. X and Mr. Y offer the same price for a commodity, it does not imply that they will be securing equal amount of utilities from the commodity.
- Marginal utility of money does not remain constant. In discussing the effect of a change in price rise or fall on the amount demanded by an individual consumer, the Utility Analysis assumes that the marginal utility of money remains constant. The utility analysis overlooks the fact that a fall in the price of a commodity itself releases some money and therefore the marginal utility of money cannot remain constant. With more money becoming available to the consumer, the marginal utility of money is bound to fall. This is indeed a serious defect of utility analysis.
- Man is not a Calculating Machine. The utility analysis assumes that individual consumer is a glorified calculating machine and that every act of his is governed by rational considerations alone. Rationality implies that the consumer calculates deliberately chooses consistently and maximizes utility. Actually speaking, the consumer is not wholly rational in his purchases and sometimes he buys goods under the influence of a momentary impulse, which obstructs rational thinking on his part. To that extent utility analysis is not realistic and precise.
- Utility Analysis ignores cross effects. The Utility Analysis treats every commodity as an independent commodity. The utility of a commodity according to this analysis depends on the quantity of that commodity alone. The utility analysis ignores fact that in real life one commodity is closely linked with the other commodities. The marginal utility of mangoes depends not only on mangoes but also on the qualities of other related fruits witch are substitutes and complements. The truth is that the utility to an individual is a function of not a single commodity but of all the commodities that enter into ones consumption. By ignoring the cross effects, the utility analysis exposes itself to criticism at the hands of critics who dubbed it as unrealistic and escapist.
- Utility Analysis does not explain the demand for indivisible goods. Another failing of the utility analysis is that it does furnish an adequate explanation of certain indivisible goods like an automobile. Normally the consumer buys only one such commodity at a time. Hence it is not possible to calculate the diminishing marginal utility of such a commodity. Consequently the Equi-marginal Principle cannot be applied in such cases.
- No destruction is made between Income Effect and Substitution Effect. Another weakness of the utility analysis is that it does not distinguish between the income effect and substitution Effect, of a fall in the price of a commodity. The utility analysis simply tells us that a fall in the price of a commodity will lead to an increase in the amount demanded. But it does not clearly explain how much of the increase on the amount demanded will be due to the Income Effect and how much due to the Substitution Effect. This is the reason why the Utility Analysis fails to explain Giffen’s Paradox.
- Too many assumptions. The critics also allege that the utility analysis make so many assumptions that it ends up as a totally inadequate and unrealistic analysis